Chorus Limited · NZX:CNU
Chorus — Non-Deal Roadshow (March 2019)
41 slides from Chorus's roadshow presentation, Mar 25, 2019
Slide 1: Chorus investor roadshow stock exchange announcement
Chorus Limited Level 10, 1 Willis Street P O Box 632 Wellington New Zealand For personal use only Email: company.secretary@chorus.co.nz STOCK EXCHANGE ANNOUNCEMENT 25 March 2019 Chorus investor roadshow The attached presentation has been prepared for our upcoming US roadshow. ENDS For further inform
Slide 2: Introducing Chorus
For personal use only Introducing Chorus New Zealand’s largest fixed line communications infrastructure business 25 March 2019
Slide 3: An overview of Chorus
An overview of Chorus For personal use only > New Zealand’s largest fixed line communications infrastructure business established in Dec 2011 following demerger from Telecom NZ listed on NZX and ASX:CNU ADR ticker:CHRYY ~NZ$2.5 billion market capitalisation (at 20 March 2019) S&P “BBB” sta
Slide 4: An open access wholesale network
An open access wholesale network For personal use only 3 25 March 2019 INVESTOR ROADSHOW
Slide 5: Our network infrastructure
Our network infrastructure For personal use only Copper VDSL to ~80% of lines; Fibre to pass ~1.36m end customers by 2023 Offices: fibre access and ‘fibre to the desktop’ IoT: pole and cabinet assets provide coverage Exchange co- Fibre to smart Fibre and power location: backhaul: to infrastructure S
Slide 6: New Zealand is taking fibre further
New Zealand is taking fibre further For personal use only > Ultra-fast broadband (UFB): a Government objective ▪ original objective (UFB1): fibre to premises covering 75% of population by 2020 ▪ subsequent agreements (UFB2 and UFB2+) extended coverage goal to 87% of population by the end of 2022 > C
Slide 7: Crown financing
Crown financing For personal use only $800m received at 31 December from Crown Infrastructure Partners (CIP) > up to $1.33 billion available by 2023 (57:43 equity/debt) AS AT 31 DECEMBER drawn undrawn ▪ CIP equity securities • unique class of security with no right to vote at shareholder meetings, b
Slide 8: FY19 is peak communal build year
FY19 is peak communal build year For personal use only ~120,000 brownfields premises to be passed across UFB1 and UFB2 expect to claim another ~18k UFB1 greenfields premises already passed in prior years Programme guidance Notes No. of premises UFB1 communal $1.75 - $1.8 billion Tracking towards
Slide 9: UFB rollout 70% complete; 51% uptake
UFB rollout 70% complete; 51% uptake Uptake For personal use only No. of UFB rollout and uptake Uptake Fibre orders completed as a % of fibre connections 1,400,000 100% capable addresses (by months available) 60% UFB connections UFB available addresses 90% 1,200,000 80% 50% Planned footprint % Uptak
Slide 10: Record fibre demand and customer satisfaction
Record fibre demand and customer satisfaction For personal use only Achieved 50% ‘fibre in a day’ target Fibre installations 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 FY18 FY19 4,000 2,000 - July Aug Sept Oct Nov Dec Jan Feb Mar April May June 9 25 March 2019 INVESTOR ROADSHOW
Slide 11: Transition to a regulated utility
For personal use only Transition to a regulated utility 25 March 2019
Slide 12: Legislation passed in November 2018
Legislation passed in November 2018 For personal use only > New regulatory framework to be implemented to replace UFB contractual framework (UFB1 ends Dec 2019) 87% of population where fibre will be available by end of 2022 Remaining 13% of population Fibre access network Where fibre is available: W
Slide 13: Regulated Asset Base implementation
Regulated Asset Base implementation For personal use only > Commerce Commission will determine the starting value of the RAB, regulatory WACC, cost allocations, expenditure allowances and maximum allowable revenue Building block cost stack 12 25 March 2019 INVESTOR ROADSHOW
Slide 14: Implementation of new fibre framework
Implementation of new fibre framework For personal use only > Commerce Commission to complete process by 1 January 2022 Input methodologies: emerging views paper due in May; draft decision in November Transition period: First regulatory period: 1 December 2019 to January 2022 1 January 2022 to Jan
Slide 15: Key implementation parameters
Key implementation parameters Parameters Chorus view For personal use only Asset valuation RAB to include all assets supporting fibre access services, including fibre in LFC areas. Valuation method defined by Act as actual cost incurred for post 2011 assets; book value for pre-existing. The Commissi
Slide 16: Proposed RAB framework similar to NZ electricity sector
Proposed RAB framework similar to NZ electricity sector Growing number of wholesale communication network comparators For personal use only Country Company Business type Market EV/EBITDA Net Debt Credit rating WACC cap /EBITDA New Vector Electricity NZ$3.5b 10.9x 2 4.37x BBB – S&P In April 2018 the
Slide 17: Broadband: the 4th utility
For personal use only Broadband: the 4th utility 25 March 2019
Slide 18: NZ market: population and premises growth
NZ market: population and premises growth For personal use only Broadband uptake by retailer (all technology) NZ broadband market – by technology 1,800,000 1,800,000 1,600,000 1,600,000 1,400,000 1,400,000 1,200,000 1,200,000 1,000,000 1,000,000 800,000 800,000 600,000 600,000 400,000 400,000 200,00
Slide 19: Chorus connection trends
Chorus connection trends 1600000 For personal use only 31 Dec 31 March 30 June 30 Sept 31 Dec 2017 2018 2018 2018 2018 1400000 Baseband copper Unbundled 68,000 62,000 53,000 45,000 39,000 copper Unbundled copper 1200000 Baseband 290,000 279,000 268,000 255,000 244,000 copper (no broadband) 1000000 C
Slide 20: Connection movements by Zone
Connection movements by Zone INDICATIVE CONNECTION For personal use only CHANGES BY ZONE > Total fixed line connections decreased by 40k to 1,486,000 (H1 FY18:-43k) Copper (no broadband) Broadband (fibre or copper) ▪ copper lines with no broadband decreased by 38k, LOCAL FIBRE mostly in Chorus UFB a
Slide 21: Fibre connections pass 500k
Fibre connections pass 500k For personal use only Total mass market fibre uptake by plan type > 84,000 mass market fibre connections added in H1 100 ▪ 71% of mass market fibre connections on 100Mbps $65 monthly 90 $55 monthly ▪ 44,000 connections on gigabit plans (FY18: 30,000) 80 ▪ glide path annou
Slide 22: Stream big
Stream big For personal use only Shift to online delivery steps up new Freeview smartvu device streams channels without need for TV aerial or satellite dish Vodafone leveraging Sky Sport via their Vodafone TV platform Spark launching sports streaming service 21 25 March 2019 INVESTOR ROADSHOW
Slide 23: Streaming is driving shift to unlimited data plans
Streaming is driving shift to unlimited data plans For personal use only 71% of NZ broadband connections have no data cap Share of connections by data cap 100% 5% 8% 90% Unlimited 33% 80% 50% 70% 100GB or more 62% 71% 60% 50GB to 100GB 50% 40% 20GB to 50GB 30% 5GB to 20GB 20% 10% Under 5GB , 2018 0%
Slide 24: Data demand isn't slowing
Data demand isn’t slowing For personal use only > Monthly average data usage per connection on our > Traffic at peak time has almost doubled since 2017 network grew to 235GB from 210GB (June 2018) ▪ 315GB on fibre (June:297GB) ▪ 174GB on copper (June:160GB) Network throughput (Gbps) Time of day 23 2
Slide 25: 1,000 Gigabytes per month by 2023
1,000 Gigabytes per month by 2023… For personal use only Video content and 4K, 8K to drive usage Application requirements in Mbps Chorus forecast: average monthly broadband usage (GB) GB 1400 Copper Fibre 1200 1000 800 600 400 200 0 Source: Cisco VNI, Forecast and Trends, 2017-2022 June 2019 June 20
Slide 26: Innovation
Innovation For personal use only trialling 10 Gigabit PON and wireless PON infrastructure re-use trialled for IoT delivery ‘fibre to the desktop’ concept trials in two schools and two new office premises school trials proving wi-fi potential to bridge digital divide network edge computing:
Slide 27: Capital and financial management
For personal use only Capital and financial management 25 March 2019
Slide 28: Capital management
Capital management For personal use only > The Chorus Board considers that a ‘BBB’ credit rating or equivalent credit rating is appropriate for a company such as Chorus. It intends to maintain capital management and financial policies consistent with these credit ratings. > FY19 dividend guidance of
Slide 29: Debt and term debt profile
> At 31 Dec, debt of $2,362m comprised: ▪ Long term bank facilities of $350m undrawn; ▪ NZ bond: $400m and $500m Debt ▪ Euro Medium Term Notes $1,462m (NZ$ equivalent at For personal use only hedged rates) As at 31 Dec 2018 Term debt profile $m CIP debt securities available Borrowings 2,362 Face val
Slide 30: FY19 guidance summary
FY19 guidance summary For personal use only FY19 EBITDA $625 – 645m FY19 Gross capex $820 – $860m Fibre capex $685m - $715m Fibre connections & layer 2 capex $310m - $340m (based on mass market 175,000-195,000 fibre connections, and 19,000 backbone builds and including service desk costs) Copper cap
Slide 31: Capex: common and copper
Capex: common and copper For personal use only Common capex H1 FY19 H2 FY18 H1 FY18 $m $m $m Information technology 17 18 17 Building & engineering services 7 11 9 Other 1 3 0 Subtotal 25 32 26 Copper capex H1 FY19 H2 FY18 H1 FY18 $m $m $m Network sustain 19 29 16 > ongoing investment in poles, proa
Slide 32: Capex: Fibre
Capex: Fibre For personal use only Cost per UFB1 premises passed (CPPP): ~$1,662 vs $1,500 - $1,600 guidance 38,000 premises passed (H1 FY18 32,000) included 13,000 UFB 2/2+ premises ~80,000 brownfields premises to be completed in H2 FY19 Fibre capex H1 H2 H1 FY19 FY18 FY18 $m $m $m UFB commun
Slide 33: Capex: Fibre connections & layer 2
Capex: Fibre connections & layer 2 For personal use only Connections capex of $161m Cost per UFB1 premises connected (CPPC): $1,038* vs $1,000 - $1,150 guidance * excludes layer 2 and includes standard installations, some non-standard single dwellings and service desk costs 95,000 single dwellin
Slide 34: Income statement
Income statement For personal use only H1 H2 H1 FY19 FY18 FY18 $m $m $m Operating revenue 489 491 499 > total connections decreasing Operating expenses (171) (167) (170) Earnings before interest, tax, 318 324 329 depreciation and amortisation (EBITDA) Depreciation and amortisation (196) (195) (192)
Slide 35: Revenue
Revenue H1 H2 H1 For personal use only FY19 FY18 FY18 $m $m $m Fibre broadband (GPON) 136 108 90 > revenue growing as fibre uptake increases Fibre premium (P2P) 37 38 40 > some churn to lower input fibre services or other networks Copper based voice 56 64 69 copper revenues declining as customers mi
Slide 36: Expenses
Expenses H1 H2 H1 For personal use only FY19 FY18 FY18 $m $m $m Labour 37 34 39 > 6% reduction in staff numbers from H1 FY18; offset partially by CPI increases Provisioning 3 2 4 Network maintenance 38 44 43 > fault volumes reducing overall, helped by fewer extreme weather events and retailers using
Slide 37: Our focus
Our focus For personal use only connecting more customers to fibre, while continuing to lift satisfaction levels growing broadband connections and enhancing our product portfolio continuing to shape our business for a fibre future To achieve our objective to return to modest EBITDA growth in F
Slide 38: Appendices
For personal use only Appendices 25 March 2019
Slide 39: Appendix A: Understanding network maintenance
Appendix A: Understanding network maintenance Fibre uptake initially reduces variable copper costs only For personal use only ▪ Rural areas are disproportionately more expensive to maintain than % FY18 lines % FY18 reactive urban areas maintenance cost ▪ Copper costs don’t reduce in proportion to th
Slide 40: Appendix B: copper deregulated in fibre areas from January 2020
Appendix B: copper deregulated in fibre areas from January 2020 For personal use only Fibre uptake is above 71% in 10 exchange areas Exchange area Region Fibre penetration: Fibre penetration: (>1,000 % of total Chorus % of Chorus connections) connections broadband connections Whitby Wellington 82% 8
Slide 41: Disclaimer
Disclaimer For personal use only This presentation: • Is provided for general information purposes and does not constitute investment advice or an offer of or invitation to purchase Chorus securities. • Includes forward-looking statements. These statements are not guarantees or predictions of future